Special Needs Planning

Planning for loved ones with disabilities 

Maryland Lawyer for Special Needs Trusts and Planning

Many clients would like to have some benefits of a trust but also want the simplicity of setting up a last will and testament. Using a testamentary trust, your Maryland trusts and estate attorney may be able to provide you exactly that.

An important tool for sustaining your family

While living trusts get far more attention, Maryland estate attorneys create testamentary trusts far more often than all others.

What is a testamentary trust?

A testamentary trust is a legal trust created in your will to provide support for a beneficiary when you die. It allows you to provide for your spouse, children, and other beneficiaries without  giving them immediate control of the inherited assets.

Similar to other trusts, parties to a testamentary trust include:

  • Settlor - the person who creates the trust, in this case the person who created the will;
  • Trustee - the person who will control the trust and its assets; and
  • Beneficiary - the one or more people receiving the benefits of the trust

The purpose of a testamentary trust

Maryland estate lawyers will use testamentary trusts for many client purposes. The most common would be if you want to leave your estate to your spouse, children, or grandchildren, but you know it’s not in their best interests to receive it all immediately upon your death.

Because of the ability to distribute the assets over time, Maryland estate lawyers often use a last will with a testamentary trust to:

  • Provide for a surviving spouse
  • Allow children and grandchildren to receive assets while supervised
  • Provide for spouses, children, and step-children in blended families

The trustee will be required to distribute the assets to the beneficiaries according to the instructions that you, the creator of the trust, provide in your last will and testament. The last will and testament will include all terms of the trust, including naming the trustee, instructions on how to invest the assets, and the rules for making distributions from the trust.

What is a Special Needs Trust?

A Special Needs Trust (also known as a Supplemental Needs Trust) is a type of trust designed specifically to provide financial support for a child or adult who has a disability. Maryland trust lawyers create Special Needs Trusts by including the legal language necessary to prevent the government from counting the trust’s assets when determining eligibility for government benefits. The government benefits a Special Needs Trust protect usually include Social Security, Medicaid, and any other program that relies upon determining eligibility based upon the disabled person having few assets..

We design this type of trust to match the person with special needs and their situation. The trust’s terms will dictate how the trustee should manage its assets and provide the maximum benefit to the disabled person. This type of trust also provides creditor and other asset protections, so if the disabled person were to incur debts or liabilities, the assets of the trust will not be in jeopardy and benefit them well into the future.

The terms of the Special Needs Trust’s trust agreement will require the trustee to act in the best interests of the beneficiary and forbid improper handling of its funds. We will use our best efforts to assist you with your choice of trustees, taking into consideration their capacity to act as the trustee and other factors we have seen in the past that show they will perform their duties well.

 

Ready to get started? We’re Ready to Help.

Contact us now and we’ll be happy to schedule a call or meeting with no commitment.
If we cannot assist you, we will gladly provide you with referrals.

What Is the Purpose of a Special Needs Trust?

Special Needs Trusts provide support to an adult or child with a disability for expenses not otherwise provided by government benefits. A Special Needs Trust can use its funds to allow the beneficiary to live independently. A Special Needs Trust may also provide money for:

  • education
  • recreation and travel
  • home repairs
  • transportation
  • additional therapy
  • clothing

In other words, the trust can provide for many necessary expenses that government benefit systems neglect to consider.

Special Needs Trusts can hold gifted and inherited funds from any person who would like to contribute. We also draft Special Needs Trusts to account for money a disabled person already received that has or will cause them to lose their benefits.

We always try to prevent having to use a self-funded trust when possible due to its less favorable required terms. Because of this, we encourage the parents of a disabled child to speak with grandparents and other relatives and friends who may leave money to the disabled child so we can have any such gifts go directly into a trust, rather than first to the child.

We can create Special Needs Trusts for individuals with various disabilities, including autism, down syndrome, and many other disabilities that prevent the person from living a normal life.

Common Types Of Special Needs Trusts in Maryland

Third Party Special Needs Trusts

A family member or a friend of the person with disabilities should form a third party Special Needs Trust. A third party Special Needs Trust uses the assets of the parent, grandparent, or other person to fund the trust. The third party Special Needs Trust can take many forms.

You can create and fund it as a living trust or as a testamentary trust through a last will and testament. Upon the death of the person who created the living trust or last will and testament, it will then fund the third party Special Needs Trust with the allotted assets.

If there may be many people contributing to the Special Needs Trust, then the family may set up a single Special Needs Trust as a stand-alone intervivos trust, that sits dormant or partially funded waiting to receive life insurance proceeds and bequests from multiple family members and other persons.

They may particularly need an intervivos trust if some family members would like to contribute, but do not understand the need or don’t want to be bothered with forming a special needs trust. Since you already formed a third-party Special Needs Trust they can use, all the relative or friend would need to do is name the trust, rather than the individual, to receive the bequests or the proceeds of the future transfer.

First Party or Self-Funded Special Needs Trust

Most people using a First Party Special Needs Trust do so because they have received assets in their name and now must solve the problem before the government discontinues their Social Security, Medicaid, or other benefits. In other words, they created the First Party Special Needs Trust because the government forced them to do so.

In a perfect world, all money received by a disabled person would go directly into a Third Party Special Needs Trust. No matter how hard the family tries, that isn’t always the case. The person with disabilities can receive money in their name due to many reasons:

  • Receiving an inheritance from a relative unaware of the effect upon benefits,
  • Receiving a payment from a lawsuit or settlement,
  • Other windfalls, such as lottery winnings, unexpected income, and similar.

Which is Better: a Third Party or First Party Special Needs Trust?

If you have a choice, you will always prefer to place funds in a Third Party Special Needs Trust. As noted above, most people forming First Party Special Needs Trusts do so because the government will otherwise stop their benefits.

To qualify as a Special Needs Trust, a First Party trust must meet many federal government requirements. The Maryland Attorney General’s Office also must approve the trust agreement to ensure it complies with all the applicable laws and regulations.

First Party trusts have many restrictions on the trust’s administration and on how the trustee uses funds for the disabled beneficiary. The beneficiary must form and fully fund the First Party trust prior to the disabled beneficiary turning 65. The trustee must make annual accountings to the Maryland Department of Health.

The biggest difference, however, is that the government can claim the remaining assets of the First Party trust upon the beneficiary’s death. In contrast, the person forming a Third Party trust can designate that unused assets of the trust can then pass to other family members.

While attorneys almost always give “it depends” answers, this is not one of them. You will prefer the flexibility and benefits of a Third Party Special Needs Trust over government restrictions and claims on a First Party.

Common Questions about Maryland Special Needs Trusts:

Do you need to be the parent to create a Special Needs Trust for someone?

There are no restrictions on who can create a Special Needs Trust. While it is typically the parent of their disabled child, it can be a grandparent or other relative, or simply a friend. The family can, in fact, coordinate to contribute to a single trust and make it more cost effective.

Who can serve as trustee of a Special Needs Trust?

The trustee of a Special Needs Trust should be someone the family and disabled person has confidence will act in the best interests of the disabled person. Since Maryland trust laws will apply to the trust, the trustee must be someone qualified under its rules. The disabled beneficiary should not be the trustee of their own Special Needs Trust. Social Security and Medicaid would treat the disabled beneficiary trustee as the owner of the trust’s assets because he controls trust distributions, thereby defeating the purpose of the Special Needs Trust.

Who should I choose to be the trustee of a Special Needs Trust?

The best trustee for a Special Needs Trust will usually be a close family member of the beneficiary. They would care about the beneficiary’s well-being and be most familiar with the beneficiary’s individual needs. Since a Special Needs Trust will remain in place for the remainder of the beneficiary’s life, you should name trustees and successor trustees that will hopefully serve for a substantial portion of the beneficiary’s life. While it might be fine to start out with a grandparent or parent being a trustee, you will want to have a sibling or someone of similar age named as successor trustee and ready to step in when needed.

How often should a lawyer review my child’s Special Needs Trust?

Assuming you can legally change the trust in question, have the trust reviewed at least every five years, which is the time we should also review most estate plans.

What happens to the money in a Special Needs Trust if the child dies?

If the disabled beneficiary passes away, then the Special Needs Trust can distribute the assets as set forth in the trust agreement. If it is a First Party Special Needs Trust, one that was funded using the beneficiary’s assets and approved by the Maryland Attorney General, then the State of Maryland will have a claim for reimbursement for medical payments made for the disabled beneficiary.

Can other family members inherit the remaining assets in the Special Needs Trust if the disabled child passes away?

As noted in the question immediately above, the trust agreement can state that other family members will inherit the assets following the death of the disabled beneficiary. But, if the trust is a First Party Special Needs Trust, then the trust must first pay the state’s reimbursement claim. To avoid the state’s reimbursement claim, you must use a Third Party Special Needs Trust and you must contribute any funds for the beneficiary directly to the trust, rather than to the disabled person first.

What happens if someone leaves money to the disabled child?

If someone leaves money to the disabled child, then you will need to establish a First Party Special Needs Trust to hold the money if you intend to continue receiving government benefits. While not crying over spilt milk, it would be far better if that relative had planned instead to leave the funds to a Third Party trust. A Third Party trust does not have as many restrictions and does not have to worry about Maryland’s claims for reimbursement upon the child’s death.

Do Special Needs Trusts need to have a trustee?

Yes, a Special Needs Trust will always need to have a trustee once formed and operating. If the trust is a testamentary trust, then the last will and testament should name the trustee.

If the disabled person already receives benefits, do we still need a Special Needs Trust?

The Social Security Administration has specific rules and regulations regarding the amount of assets and income that qualifies a person for Social Security Disability. They regularly monitor the disabled person’s status and check information from the Internal Revenue Service to see whether the person has additional income sources. They do this to ensure only those people who truly need to receive benefits receive them.

If you intend to give assets to a disabled person who already receives government benefits, you will want to plan to put the funds into a Third Party Special Needs Trust. If the disabled person receives sufficient funds in their name to affect their benefits from some other source, then they will want to form a First Party Special Needs Trust immediately. Once discovered, Social Security may retroactively cancel their benefits and force the disabled person to repay benefits received between receiving the funds and putting it into the trust.

How long does it take to form a Special Needs Trust?

The time needed to form a Special Needs Trust can vary depending on the type of trust being formed. If it is a Third Party Special Needs Trust, then it would take approximately the same time needed to prepare your estate planning documents. The trust and estate plan can be complete anywhere from a couple of days to a few weeks, depending upon the planning needed, client responsiveness, and the urgency of the situation.

If it will be a First Party Special Needs Trust, then the Maryland Attorney General will also need to approve the trust to make sure it complied with Social Security and Maryland laws and regulations. Unfortunately, we have little control over their timing, but the typical time required for their approval has usually taken from about one month to a few months, depending on their staffing.

How can the Trustee of a Special Needs Trust use the trust’s funds?

The trust agreement will dictate how the trustee can use its funds. Since we’re talking about Special Needs Trusts, consideration must be given on how to use the funds without affecting the beneficiary’s government benefits. If the trust is a Third Party Special Needs Trust, far fewer restrictions apply to the use of the trust’s funds.

If the trust is a First Party Special Needs trust, the number one rule is that the funds should not be used to make any direct payments to the beneficiary. This includes, whether as a stipend or in reimbursement for expenses, and applies even if the trust could normally pay those paid or reimbursed expenses. Social Security could count those payments as income to the beneficiary and reduce the beneficiary’s Social Security benefits dollar for dollar.

Unfortunately, this is an extensive topic. Maryland trust attorneys discuss using funds with trustees as different needs arise.

What is the most money you would put into a Special Needs Trust?

If the trust is a First Party Special Needs Trust, then you will want to put the bare minimum required to have the person be under the asset cap required to qualify for Social Security benefits. If you have additional assets not owned by the disabled beneficiary, then you would want to contribute those funds to a Third Party Special Needs Trust.

A Third Party trust has no real limits on what you can contribute to it and can distribute any amounts left over after the disabled beneficiary’s death to other family members you choose. In contrast, Maryland can make a claim against the remaining assets of a First Party trust to reimburse the Medicaid payments it made for the beneficiary.

How much will Maryland take from the Special Needs Trust after my child passes?

The answer depends upon the type of Special Needs Trust. If it is a Third Party trust formed by a relative of the disabled person, then Maryland will not have a claim against the remaining assets of the trust. But if it is a First Party trust, formed with funds of the disabled person and approved by the Maryland attorney general, then Maryland will have a claim against the remaining assets to the extent necessary to reimburse the state for medical payments it made for the disabled person.

Are Special Needs Trust laws in Maryland different from other states’ laws?

While all states must apply the same federal social security laws when determining whether a trust complies as a Special Needs Trust, the states each have their own laws on how trusts operate and on their implementation of those federal laws. The trust and estate plan can be complete anywhere from a couple of days to a few weeks, depending upon the planning needed, client responsiveness, and the urgency of the situation.

When should I create a Special Needs Trust?

You should create a Special Needs Trust prior to the funds being placed into the control of the disabled person. If the source of the funds is an intended bequest at death, then it’s urgent you complete your estate planning and include the trust as soon as possible to avoid any unexpected issues.

If you inadvertently left the money directly to the disabled person, the government could discontinue their benefits until the disabled person spent everything you provided them or form a First Party Special Needs Trust, if possible. You essentially gave your estate to the government by relieving it of its obligation.

Who can form a Special Needs Trust?

Anyone can form a Special Needs Trust for a disabled person. Coordinate with the family to determine if they already established a trust you can help fund. If not, then the family may want to work together to form a single trust to which all can contribute.

TESTIMONIALS

Words From Clients

Jeff was a great attorney to work with on the sale of our business. When problems popped up for the buyer to close, his manner kept everyone calm, both us and the buyer, and he came up with great solutions.  Jeff's experience definitely shows, and we'll be happy to work with him again.     - Elizabeth B.

Our CPA recommended Jeff to help us with our estate planning and transferring our business to our kids. Jeff was a friendly guy and understood the business and personal issues we were concerned about with giving the business to our kids. He came up with a great plan that reduced the taxes and made sure the business would stay open after we retired. We think our estate plan we made with Jeff will really help our family after we're gone. We are happy our CPA recommended him and with the work Jeff did for us. - Tom D. 

Schedule a Consultation